Reverse mortgage pros and cons, with the numbers
The main advantages: no monthly payments, you keep title and stay home, and the money is tax-free. The main drawbacks: rates about two points above regular mortgages, compounding interest that shrinks your equity, set-up costs of $3,000 or more and prepayment charges if you leave early.
Figures as of November 1, 2026.The main advantages: no required payments, no income test, you stay in your home and keep title, the money is tax-free, and you can't owe more than the home's value if you keep the terms. The main drawbacks: higher rates (about 6.49% for a 5-year term today), a balance that roughly doubles every 10.9 years, about $3,070 in set-up costs, early-repayment charges and less left for your heirs.
The advantages
- No required payments. Your monthly budget doesn't change. A HELOC, by contrast, needs at least the interest every month.
- No income test. Qualification rests on age and the home. Retirees with modest income who'd fail a HELOC's stress test (at least 5.25%) can still qualify.
- You stay and keep title. Any rise in the home's value stays yours.
- Tax-free, and benefits are safe. The FCAC says the money isn't taxed and doesn't affect OAS or GIS.
- The limit can't be cut. Once advanced, the money is yours; a bank can reduce or freeze an unused HELOC.
- No-negative-equity guarantee. If you keep the terms, you or your estate won't owe more than the home's fair market value.
The drawbacks
- Higher rates. CHIP's 5-year special is 6.49% and its posted renewal rate 7.09%, against a 4.58% Bank of Canada average for new uninsured 5-year-plus fixed mortgages (2026-08).
- Compounding. $100,000 becomes $189,400 in 10 years and $358,725 in 20.
- Set-up costs. About $3,070 with HomeEquity Bank (closing fee, appraisal, legal advice), $2,300 all-in with Bloom.
- Early-repayment charges. Up to 5% of the amount in year 1 with HomeEquity Bank. If you might move within three years, this matters.
- Less for heirs. Often much less: see estate and heirs.
- Less room later. Borrowing now uses equity you might want for care or a move later.
Who it suits, and who it doesn't
| Often a fit | Often not |
|---|---|
| Want to stay put for 10+ years | May move or need care within 3–5 years |
| Low income, can't carry HELOC payments | Can qualify for and afford a HELOC |
| Older (75+), so a bigger share and fewer years of compounding | Mid-50s, decades of compounding on a small share |
| Leaving an estate is not the priority | The home is the main inheritance you want to pass on |
A two-minute test
Open the comparison engine, pick the preset closest to you and look at two numbers: what's left at 85 on the reverse mortgage versus downsizing, and the HELOC's monthly interest. If you'd downsize happily, or could carry the HELOC payment, a reverse mortgage is probably the expensive choice. If neither is true, it may be the right one.
Pros and cons, in numbers
| Pro | Con |
|---|---|
| No monthly payments | Balance doubles about every 10.9 years at 6.49% |
| Stay in your home and keep title | Set-up from $2,270 to $3,770 |
| Tax-free; no effect on OAS or GIS (HomeEquity Bank) | Prepayment charges in the first 3 to 10 years |
| No income test | Rates about 1.9 points above the average new mortgage |
| Never owe more than the home's value (terms kept) | Less left for heirs |
Who benefits most?
The advantages weigh most for people in their 70s and 80s who want to stay at home, are short of monthly income, and wouldn't be approved for a HELOC. The disadvantages weigh most for younger borrowers, who give the balance decades to compound, and for anyone likely to move within a few years, who pays set-up and prepayment charges for a short benefit.
How can you reduce the drawbacks?
- Take money monthly or in later advances instead of one large lump sum.
- Choose the lowest rate that fits: Flex Lite and EquityAccess lend less but cost less.
- Pay some interest when you can, within the lender's yearly allowance.
- Tell your heirs, and check the plan again every few years.
| Home | $600,000British Columbia |
|---|---|
| Age | 75 |
| Needs | $1,000 a month for lifeIncome Advantage scheduled advances |
| Reverse mortgage left at 90 | $553,389 |
| Downsize to $400,000: left at 90 | $625,977 |
| Sell and rent: left at 90 | $21,519 |
| Leaves the most at 90 | Downsize |
Open this example in the calculator →Computed by our engine with the lender terms and rules on the methodology page.Computed November 1, 2026.
What this means for you
The pros are about staying; the cons are about cost. If moving is acceptable, downsizing usually leaves more; if staying matters most, a reverse mortgage does the job, and taking money monthly keeps the interest down.
Run your own trade-off on the comparison, then check the full cost list.
Frequently asked questions
What is the biggest downside of a reverse mortgage?
Compound interest. With no payments, the balance grows quickly: about $260,658 after 15 years on $100,000 borrowed at 6.49%. That reduces what you or your heirs keep.
Can the bank take my house?
Not while you keep the terms: live there, pay property tax and insurance, maintain the home. Breaking those terms can lead to default and, as the FCAC notes, potentially foreclosure.
Primary sources
- Financial Consumer Agency of Canada — Reverse mortgages (effective October 15, 2025). Checked .
- HomeEquity Bank — CHIP Reverse Mortgage rates (special rates as of October 29, 2026) (effective October 29, 2026). Checked .
- HomeEquity Bank — CHIP frequently asked questions. Checked .
- HomeEquity Bank — Client FAQs (repayment, estate, default). Checked .
- HomeEquity Bank — Prepayment charge calculator (contracts 32–34). Checked .
- EQ Bank (Equitable Bank) — Reverse mortgage comparison and rates (prime 4.70% as of October 29, 2026) (effective October 29, 2026). Checked .
- OSFI — Guideline B-20: Residential mortgage underwriting practices and procedures. Checked .